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Mr. CORCORAN. What is that?
Mr. WOLVERTON. How are you going to catch anybody?

Mr. CORCORAN. Well, sir, how do you catch a lot of things that actually do turn up? Mr. WOLVERTON. That is what I am asking you.

Mr. CORCORAN. You might catch it in the course of investigations. That is the way they found out about Mr. Wiggin.

Mr. WOLVERTON. But, that cost thousands of dollars to get that information against Mr. Wiggin, and the others, to whom you refer.

I am thinking of it now in terms of every day practice, in connection with the selling of stock, and I have in mind two men sitting at luncheon together, and one suggests to the other certain procedure as to purchase or sale of stock. How are you every going to get at that situation?

Mr. CORCORAN. You mean, how are you going to find out?
Mr. WOLVERTON. Yes.

Mr. CORCORAN. Sir, in the great, great majority of cases in which that occurs, you are never going to find it out, but is it not worth while to get those cases where you can find it out, you want to catch them even if you cannot catch all of them.

Mr. WOLVERTON. But, with this bill before us in an effort to regulate the stock exchanges, and eliminate certain evils, I would like for you to give us an example as to how it is to be done. I am interested in the practical side of it and not the theoretical side. I am not in favor of just putting words into a bill without giving serious consideration to their effectiveness.

Mr. CORCORAN. You will catch a few of them, and the fact that there is a risk of being caught, even if that is only a small risk, will act as a deterrent in a great many cases.

Mr. WOLVERTON. It would seem to require considerable optimism to expect this provision in the bill to be more effective than the Prohibition Enforcement Act. Do you have such optimism?

Mr. CORCORAN. Yes; I suppose I have.

Mr. WOLVERTON. Well, that act has certainly shown the utter futility of attempting to enforce a provision of this kind. It seems to me this provision might be even more difficult.

Mr. CORCORAN. No. You have said to all of the stockholders of the company, “You can recover any of this profit for your own account,

if you find out that any such transactions are going on.” By putting a private-profit motive behind the uncovering of this kind of leakage of information, you have made the stockholders your policemen. Certainly you agree with the principle. It does not harm, sir, to put it in, simply because you may catch only 5 percent of the cases.

Mr. WOLVERTON. It seems to me that it is like shadow boxing, unless you put something in the bill that is effective in getting results.

Mr. Corcoran. What you say, sir, is true, but what we are doing is prohibiting a practice and giving the stockholders a right to recoup from that practice, which everybody admits is wrong, even if you do not think you can catch violations more than five out of a hundred times.

Mr. WOLVERTON. Well, of course, that may be right.
Mr. Corcoran. Let us catch the five.
Mr. Wolverton. How are you going to catch the five?

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Mr. CORCORAN. Somebody will peach.
Mr. WOLVERTON. Somebody who was not in?
Mr. CORCORAN. Somebody that was not in.
Mr. WOLVERTON. And yet hear about it?
Mr. CORCORAN. And vet hear about it.
Mr. WOLVERTON. Well, if they hear about it, they could be in.
Mr. CORCORAN. They could have been in.

Mr. WOLVERTON. They could have been in but were not in, and therefore will “ peach”, as you put it?

Mr. CORCORAN. Yes.
Mr. WOLVERTON. Why would they peach?
Mr. CORCORAN. For what reason?
Mr. WOLVERTON. Yes.
Mr. CORCORAN. Why do men peach, sir? You never know.

Mr. WOLVERTON. Then, so far as the effect of this bill is concerned, its effectiveness in this particular depends upon the mental attitude of the man?

Mr. CORCORAN. This information might turn up in tax returns; it might turn up in the course of investigations; it might turn up in lawsuits when thieves fall out-it might turn up in a lot of ways.

Mr. WOLVERTON. This would have to be within 6 months after the transaction?

Mr. CORCORAN. No. The transaction has to be completed within 6 months. But the discovery does not have to take place within 6 months.

Mr. WOLVERTON. Within what time does the discovery have to be made for the penalty as provided in the bill to apply?

Mr. CORCORAN. Two years after the discovery.

Mr. WOLVERTON. So that your thought is that the mere fact that there is a penalty provided that that would act merely as a deterrent?

Mr. CORCORAN. The fact that the stockholders, with an interest, are permitted to sue to recover that profit for the benefit of the company, puts anyone doing this particular thing, in the position of taking risk that somebody, with a profit motive will try to find out.

The section is a deterrent, and you will in some cases actually catch violators.

Mr. WOLVERTON. Well, it seems to me you are just trying to scare them, in this particular, the same as we do children, if we say “Look out, or the bogey man will catch you."

Mr. CORCORAN. No. Suppose a man is very close to the inside of a corporation, and there is circumstantial evidence turning up, for instance, in tax returns, or otherwise, that he did buy stock just before a lift and sold out within 6 months, and that he was very, very close to a certain officer, or director of the company. That might be enough to prove a case against him.

Mr. WOLVERTON. My optimism is not as great as yours.

Mr. CORCORAN. You might find from stock records that somebody on the inside bought just before a dividend was raised. I know that we are not going to catch 100 percent of the violations. I do not think that we will catch more than 5. But I think that the risk of being caught is a deterrent and I do not see what you lose by putting a provision in. I do not think that I am much more optimistic than you are about the number of violators who will actually be caught.

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Mr. WOLVERTON. You probably think that you will get 5 percent, whereas it might only be that we would catch 1 percent.

Mr. CORCORAN. Well, let us catch 1 percent.

Now, let us go to the “Registration Requirements for Securities" on the exchanges, on page 22, section 11 (a).

These are provisions which Mr. Whitney attacks as the most dangerous in the bill and around which he is trying to rally against the bill corporation executives all through the country.

Just before we come to that section let us look at section 13, for a moment, on proxies.

This is another provision to prevent insiders from deluding outsiders as to their interest in the company. It is to check proxy abuses.

You will remember, if you are a stockholder of a company, that you very seldom go to meetings. You give a form of proxy which will enable somebody else to vote your stock in any way he sees fit. The proxy solictors tell you nothing, since they are required to tell you nothing under the laws of most States. A few men on the inside who may have no interest in the company whatever, can get you to give them proxies because you have no information for judgment.

Now, this section requires the proxy solicitors to furnish information, that anyone asked to execute a proxy should have, i.e., what interest the person named as a proxy has in the company. Furthermore, it requires that a list of the stockholders to whom solicitations have been sent, or a list of

the bondholders from whom consents are solicited be filed with the Federal Trade Commission.

The bill as it now reads requires that the statement of the other stockholders and bondholders solicited shall accompany each proxy. That is wrong. The section should be redrafted to provide that such information should be filed only with the Federal Trade Commission.

In connection with reorganizations of companies, particularly, one of the biggest evils has been that the only interest which knows or has a list of the bondholders, or the stockholders, under existing conditions, is the house sponsoring one protective committee, and there is no way in which a stockholder or a bondholder who does not want to go along can find out who are the other stockholders and bondholders similarly situated, with whom he might cooperate, and form a protective committee.

This provision prevents the great mass of unorganized stockholders and bondholders from being at the mercy of a management which controls the lists of those to whom proxy solicitations can be sent.

Mr. CROSSER. You say the statute or act. You mean the bill.
Mr. CORCORAN. The bill.
Mr. MERRITT. How are you going to get a list of the bondholders?
Mr. CORCORAN. Of what, sir?
Mr. MERRITT. How are you going to get a list of the bondholders?

Mr. Corcoran. If there is no list we cannot get it. But this section provides that the solicitors must send a list to the Commission of the persons to whom they sent requests for proxies. And the solicitor issuing the call for proxies-

Mr. MERRITT. That is a pretty loose proposition.
Mr. CORCORAN. I beg your pardon, sir.
Mr. MERRITT. That is a pretty loose proposition.

Mr. CORCORAN. The bill provides that if you are going to solicit proxies you have to let the stockholders and bondholders and others whom you are soliciting know to whom you have sent solicitations, so that they will know of those to whom a similar proposition has been made.

Mr. MERNITT. What do you think that that will amount to? I do not think that it will amount to anything.

Mr. CORCORAN. Well, in the real-estate reorganizations in New York, it has amounted to a great deal.

Mr. MARLAND. Mr. ChairmanThe CHAIRMAN. Mr. Marland. Mr. MARLAND. Mr. Corcoran, before you pass that section of the bill relating to proxies: Do you not consider that one of the most serious difficulties confronting a corporation, that is, the practices, and the fact that under our present methods, the method of getting proxies for the election of officers?

Mr. CORCORAN. Yes, sir. You will notice (b) in here, sir; you are thinking of a situation where a broker in whose name the stock stands, gives proxies.

Mr. MARLAND. Yes.
Mr. CORCORAN. That is forbidden under section (b).

Mr. MARLAND. Is it not a fact that officers and directors of corporations frequently owning a very small fraction of 1 percent of the stock of that corporation solicit and receive proxies from stockholders, sufficient to insure their reelection?

Mr. CORCORAN. That is right, sir. That is why the bill requires that a solicitor shall show the relations, and interests in the security, of the men who are named in the proxies to vote the stock, so that the solicitors have to tell the stockholders that solicitors who own only 1 percent of the stock of the company are asking their proxies to vote their shares as well. I think it covers exactly the point that you are making, sir.

Mr. MARLAND. That is objectionable.
Mr. CORCORAN. That is objectionable.

Mr. MARLAND. Recent disclosures of the Senate committee show that the officers, where one corporation sold or negotiated the sale of the control of that corporation to another corporation and received a large bonus, had an interest in a stock exchange pool, at the same time he consented to the merger of his corporation with the other. You recall that?

Mr. CORCORAN. No, sir. I am sorry, but I do not recall the specific case.

Mr. MARLAND. You remember the disclosures made before the stock exchange investigating committee of the Senate with regard to the profits made in consolidating oil company stocks.

Mr. CORCORAN. Yes.

Mr. MARLAND. And that the president “Blank Corporation” received a large interest, or a small interest-amounting to a great many dollars—in a pool in another stock at the time he engineered the consolidation between those two oil corporations.

The disclosure of the information or the reporting of the interest that the president of that corporation had, the number of shares of stock be had in his own company might have been very valuable to the stockholders at that time, might it not?

Mr. CORCORAN. Very. Proxies, as solicitations are made now, are a joke. The persons who control the machinery for sending out the proxies, with practically no interest in the corporation, can simply keep other people from organizing, can get enough proxies to run the company. At most stockholders' meetings, no one turns up, and the proxy is always very carefully worded to approve all acts of the officers and directors for the preceding fiscal year. Something like such an approval is included in the corporation records, but insofar as real approval by the stockholders is concerned it is a mere sham. But the proxies do satisfy the letter of the law.

Mr. MARLAND. We do know that officers and directors of corporations owning a very small percentage of the stock perpetuate themselves in office.

Mr. CORCORAN. Yes.

Mr. MARLAND. Has your study given you any idea as to how that evil can be corrected?

Mr. CORCORAN. Well, if the law requires the management to show what the position of directors' holdings regulation of the exchanges and the Commission could to some degree bring about a condition where the stockholders would at least know what their situation was. In addition, a Commission could require enough information in a proxy when it was sent out to the stockholders to let them know what their situation was.

Most stockholders of course won't even read the proxy. They will just sign it or throw it in the wastebasket. But there is always a chance that out of the great number who remain inert one or two will really take up the fight and if they know who and where the others are they will try to get the others interested. Then in concert they can do something about the company. All you can do for the proxy evil, is publicity. With publicity you can hope that somebody will be willing to try to take up the fight and carry the costs a legal fight always entails.

It is one of the big worries about the corporate form of doing business in this country, that the stockholders, nor really even the boards of directors do not actually run corporations, but coterie of a very few men on the inside.

Mr. MARLAND. Would it be practical to require the directors, officers of corporations, to send out proxies to stockholders, instead of sending out proxies designating them as the proxy to hold the shares or vote the shares of others, designating some one with a publc interest to vote the shares?

Mr. CORCORAN. That might be done, sir, but it is pretty hard to pick the person to represent the “public interest.” You have often heard it said that, if for instance, the Interstate Commerce Commission could deputize someone to vote all of the unvoted railroad stock, the Government could control the railroad situation without having to invest in it. But you would not want to do that, and you could never be sure of anyone designated to act "in the public interest."

You are tied up, sir, with a problem so big that this proxy solicitation touches only one edge of it.

Mr. MARLAND. In this bill, you are attempting to touch one edge?
Mr. CORCORAN. We are attempting to touch one edge.
Mr. MARLAND. You are attempting to touch only one edge.

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